FTC Gets Restraining Order Against Mortgage Loan Modification Operators

The Nevada federal district court recently granted a temporary restraining order (TRO) against a large group of mortgage loan modification operators, following a complaint from the Federal Trade Commission (FTC) which alleged that the operators violated the FTC Act and Regulation O by making deceptive representations to consumers and failing to disclose required information regarding the provision of mortgage assistance relief.  The TRO prevents the operators from making misrepresentations about their mortgage loan assistance relief services, prohibits them from collecting fees from consumers prior to the execution of a written agreement for relief services, and temporarily freezes the operators’ assets.

In the FTC’s initial complaint and motion for preliminary injunction against the operators filed in early January 2018, the Commission claimed that the operators collectively misled and induced “financially distressed homeowners” to sign contracts for the defendants’ services by allegedly (1) advertising mortgage assistance relief services by promising larger-than-actual results (such as, a large amount of reduction in monthly mortgage payments and concrete legal resolutions to foreclosure), and (2) instructing homeowners to stop submitting mortgage payments in order to assure their eligibility for loan modifications.

The FTC claims that the defendants’ representatives made “false claims” to consumers in order to entice them to sign up for various services, overstated the likelihood of the receipt of a loan modification, and exaggerated about the amount of a possible reduction of interest rates or the effect of legal services provided (i.e., promising to get rid of foreclosure).  It also alleges that the Defendants failed to make required disclosures during commercial communications and misled consumers—using ambiguous statements and “doctored” government logos—to believe that the defendants were affiliated with the federal government’s “Making Home Affordable” loan modification program.  Finally, the FTC alleges that the defendants charged consumers upfront fees before executing an agreement for, or receiving, loan relief services, which is unlawful.  The Commission alleges that some consumers who paid these fees did not receive the loan modifications they were “promised,” did not receive promised legal assistance, were left to negotiate on their own with lenders, and suffered severe economic injury.

The TRO, which was granted January 10, prohibits the operators from: (1) making various misrepresentations about the effectiveness of the operators’ services and the operators’ affiliation with various federal loan modification programs; (2) collecting fees before consumers have executed written agreements with the operators for mortgage assistance relief; (3) failing to make certain required disclosures in commercial communications; and (4) releasing customer information.  Further, the operators’ assets have been frozen.

Since the Court granted the TRO, one of the individual defendants, appearing pro se, has filed a motion to dismiss based on personal jurisdiction.  A hearing on the FTC’s Motion for Preliminary Injunction has been scheduled for February 7th.

The case, Federal Trade Commission v. Consumer Defense, LLC, et al., is accessible here.